FTSE 100 higher as China eases Covid restrictions, GSK gets relief from Zantac ruling, Moonpig hit by postal strikes and Mitchells & Butlers’ sales perk up

“The FTSE 100 shrugged off losses on Wall Street overnight to trade higher on Wednesday morning as China showed genuine signs of easing up on Covid restrictions,” says AJ Bell Investment Director Russ Mould.

“Warnings from big American investment banks of a US recession in 2023 are setting less than happy mood music heading into the end of 2022 and the prospects of a Santa rally are fading by the day.

“The Federal Reserve meets next week to decide its latest rate increase and it still has plenty to think about as economic data delivers conflicting messages about the future trajectory of inflation and growth.

“Further evidence of a slowdown in UK house prices is unsurprising, but it underlines how tough the property market is right now as mortgage rates remain elevated and people don’t feel in a position to make such a big commitment thanks to uncertainty and cost of living pressures.

“The turmoil could become self-fulfilling as messages about double-digit falls in house prices moving forward lead potential purchasers to sit on their hands.”

GSK

“Shareholders in pharmaceutical giant GSK got some timely pain relief with news that it, plus its peers Pfizer and Sanofi, had successfully defeated thousands of lawsuits suggesting the heartburn drug Zantac caused cancer.

“This outcome is probably the best GSK could have hoped for given how comprehensively the judge in the case dismissed the plaintiffs’ arguments.

“While there is some risk of an appeal, and there are other cases outstanding, GSK will be sitting a lot more comfortably than it was before this judgement was handed down.

“It will allow the market to focus on the recent improvements in GSK’s underlying performance and the fact it is now a leaner and more efficient operation thanks to the spin-off of its consumer health division, now trading as Haleon.

“Haleon itself, which was also seen at risk of some exposure to the Zantac affair, also enjoyed strong share price gains on Wednesday.”

Moonpig

“Online greetings card platform Moonpig might like to present itself as a technology business but it is still reliant on the local postie to get its product through people’s letterboxes.

“Royal Mail strikes are bad news for Moonpig and that’s a message which is coming across loud and clear in the company’s first half results.

“Some people have clearly been put off ordering cards through Moonpig thanks to the postal strikes, judging by the drop in volumes in September and October. The danger is that the same trend will continue in the crucial November and December period as the prospect of more industrial action looms.

“Moonpig is good option for some people as it takes the hassle out of going to the shops to buy a card and stamp, but this convenience factor doesn’t count for much if the sender isn’t sure the recipient will get their card on time.

“What is perhaps most concerning it how rapidly the situation has deteriorated given trading was reported to be in line with expectations as recently as September. While revenue guidance has been trimmed, the company is sticking with its expectations for adjusted earnings having scaled back spending. This isn’t a long-term solution though.

“Greeting cards sales have demonstrated resilience in previous recessions but the risk of further disruption will be keeping Moonpig management up at night.”

Mitchells & Butlers

“Fear not, we haven’t abandoned a good night out if Mitchells & Butlers’ results are anything to go by. Amid worries that the cost-of-living crisis will prevent a lot of people from visiting their local pub or going out for a meal in a pub restaurant, the outlook for a company like Mitchells & Butlers wasn’t good. Add on top comments from Wetherspoons that people were drinking fewer pints in the pub, and it was easy to assume that the broader hospitality sector was in trouble.

“However, the past 10 weeks have seen a big improvement for Mitchells & Butlers’ sales. This suggests people are still willing to splash some of their cash on leisure activities with friends and family, and they aren’t simply sitting at home feeling glum.

“Interestingly, food has been the big driver of sales for the business in 2022, not drinks. This may surprise a lot of people as someone strapped for cash might easily avoid going out for a meal as it can cost a lot of money, whereas they might be more prepared to have a few pints of beer.

“Helping Mitchells & Butlers is the strength of its brands including Harvester and that some of its competitors have fallen by the wayside. The casual dining market has seen quite a few victims over the past year so Mitchells & Butlers could pick up market share even without adding new sites.

“The only problem is that cost pressures remain intense. Having modelled various scenarios, the company says in an adverse situation there is a risk that debt covenants would be breached. That’s something for investors to consider before getting carried away by the near-9% rally in its share price today.”

These articles are for information purposes only and are not a personal recommendation or advice.